Barclays’s Diamond Finds a Friend When It Counts

July 20 (Bloomberg) -- Imagine you ran a too-big-to-fail
bank under criminal investigation by U.S. prosecutors. Now ask
yourself this: How much of your company’s money would you pay to
have the Justice Department inoculate you personally against the
prospect of any government charges?

If you said “the sky’s the limit,” you’re not alone.
Prosecutors often settle claims against corporations in exchange
for fines, while letting the executives off scot-free. This
brings us to the $160 million non-prosecution agreement that
Barclays Plc reached last month with the Justice Department, a
week before Robert Diamond resigned as its chief executive
officer.

In essence, although it didn’t mention him by name, the
Justice Department publicly cleared Diamond of wrongdoing over
the way he responded to a pivotal phone call from Paul Tucker,
the Bank of England’s deputy governor, on Oct. 29, 2008, during
one of the worst moments of the financial crisis. Here’s the
crucial sentence from the “statement of facts” that the
Justice Department and Barclays agreed were “true and
accurate,” as part of their settlement:

“As the substance of the conversation was passed to other
Barclays employees, certain Barclays managers formed the
understanding that they had been instructed by the Bank of
England to lower Barclays’s Libor submissions, and instructed
the Barclays dollar and sterling Libor submitters to do so --
even though that was not the understanding of the senior
Barclays individual who had the call with the Bank of England
official,” the June 26 document said.

Conflicting Accounts

We now know that Diamond was the Barclays person referred
to at the end of that sentence and that Tucker was the Bank of
England official, thanks to documents released by U.K.
lawmakers. We also know there are conflicting, unresolved
accounts of what Diamond’s understanding actually was.

Libor, short for the London interbank offered rate, is the
interest-rate benchmark used in hundreds of trillions of dollars
of financial contracts, based on daily surveys of large banks
about their borrowing costs. Barclays admitted manipulating
Libor submissions as far back as 2005. Other big banks are under
investigation, too. Barclays was just the first to settle.

This week, former Barclays Chief Operating Officer Jerry
del Missier contradicted Diamond’s version of events -- and the
Justice Department’s -- during testimony before Parliament’s
Treasury Committee. He said Diamond told him during an Oct. 29,
2008, phone call to lower the bank’s Libor submissions, and that
Diamond told him the instruction came from Tucker during their
conversation earlier that day. (At the time, Diamond was head of
Barclays’s investment-banking business, where del Missier also
was a senior executive.) Del Missier said he responded by
relaying the order to the head of Barclays’s money-market desk,
who then followed through on it.

Diamond told the same panel on July 4 that he didn’t
believe he received an instruction from Tucker, and that del
Missier misunderstood him. So far, it has been del Missier’s
word against Diamond’s. Treasury Committee members have said
they don’t know whom to believe. Tucker, for his part, last week
told the committee he wasn’t nudging Barclays to underreport its
Libor submissions. His credibility came under attack, too.

So how did the Justice Department determine what Diamond’s
understanding was? And how could it be so sure? A Justice
Department spokeswoman, Alisa Finelli, declined to comment. We
may never know, because the government’s case against the
company isn’t going to court.

The settlement was one of three related to Libor for
Barclays last month. The bank also agreed to pay $200 million to
the U.S. Commodity Futures Trading Commission, which spearheaded
the investigation, and 59.5 million pounds ($93.5 million) to
the U.K. Financial Services Authority.

Consistent Story

Notably, the CFTC’s order against Barclays didn’t include
any statement characterizing Diamond’s understanding of Tucker’s
comments. The FSA didn’t either, although its story line was
consistent with Tucker’s.

“No instruction for Barclays to lower its Libor
submissions was given during this telephone conversation,” the
FSA’s final notice said. “However, as the substance of the
telephone conversation was relayed down the chain of command at
Barclays, a misunderstanding or miscommunication occurred.”

The only known record of what Tucker said is an ambiguous
note that Diamond e-mailed to del Missier on Oct. 30, 2008, the
day after Tucker’s phone call. In the memo, Diamond said Tucker
told him “he had received calls from a number of senior” U.K.
government officials asking “why Barclays was always toward the
top end of the Libor pricing.” The note said Tucker told him
“that it did not always need to be the case that we appeared as
high as we have recently.”

Both del Missier and Diamond told the Treasury Committee
that, to their knowledge, they are no longer under investigation
by U.S. or U.K. authorities. Bloomberg News reported this week
that U.S. prosecutors are preparing Libor-related criminal cases
against other individuals who worked for Barclays.

Barclays certainly had an incentive to get the language
about Diamond’s state of mind in its agreement with prosecutors:
Diamond was its CEO. At the time of the deal, neither he nor del
Missier planned to step down. It was only after a political
firestorm erupted in response to the settlement that Diamond and
del Missier felt compelled to resign, along with departing
Barclays Chairman Marcus Agius.

By all appearances, Barclays paid a lot of money for a deal
that let its top executives off the hook, while prosecutors
accepted Diamond’s version of events as part of the
negotiations. That let them get a settlement and move on.
Whatever its basis for concluding that Diamond’s story was the
truth, the Justice Department owes the world an explanation.

(Jonathan Weil is a Bloomberg View columnist. The opinions
expressed are his own.)

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